Businesses: Welcome news, but....
Although businesses will be relieved to avoid a no-deal crisis, they have just a few days until the withdrawal agreement ends (including Christmas!)
Paul Everitt, chief executive of ADS (the Aerospace, Defence, Security and Space trade body) says getting ready will be ‘difficult’:
“The UK aerospace, defence, space and security industries welcome the agreement of a deal on the UK’s future relationship with the EU. A deal provides the best framework for our relationship with European allies and industrial partners.
“We recognise the deal does not meet all our ambitions and will examine the full legal text to ensure priority areas including aviation safety and chemicals regulation, customs and border control, and Northern Ireland are appropriately addressed.
“There is now just one week remaining until the end of the transition period, and it will be difficult for businesses to be ready in time.
“The Government must issue swift, clear and comprehensive advice to businesses on preparations, and work urgently to put all necessary arrangements in place.”
Mike Hawes, chief executive of car industry body SMMT, agrees that businesses need assistance to handle the changes:
“We welcome today’s agreement of a new EU-UK trading agreement, which provides a platform for our future relationship. We await the details to ensure this deal works for all automotive goods and technologies, including specifics on rules of origin and future regulatory co-operation.
A phase-in period is critical to help businesses on both sides adapt and efforts should now be sustained to ensure seamless implementation, with tariff-free trade fully accessible and effective for all from day one.
We will continue to work closely with government to ensure all companies are as prepared as possible in the limited time left.”
More reaction, and full analysis, here!
A late reminder that the pound remains rather weaker than in 2016, despite strengthening in recent months:
...note that sterling still 9% down vs dollar than on the date of the referendum pic.twitter.com/tENSQun41R
— Ben Chu (@BenChu_) December 24, 2020
Brexit deal: City reaction
Seema Shah, chief strategist at Principal Global Investors, says the UK will lose ‘some of its sheen’ thanks to Brexit, even though a free trade deal has been reached.
“Markets should react positively to the news that a deal has been reached. The cleaning up of this endless saga will provide relief to Brexit-weary investors and the public alike. While Sterling will enjoy a bounce, there is no escaping that the deal agreed will not protect the UK economy from some form of economic disruption next year which will only add to the deep economic scarring already inflicted by COVID-19.
“2021 will undoubtedly be a stronger year for the UK economy, as it will for many countries, with the introduction of the vaccine. But the damage inflicted by COVID-19 this year means that, according to the Office of Budgetary Responsibility’s (OBR) own forecasts, the UK economy will shrink by almost 11% in 2020—its worst annual performance in over three centuries. That economic damage will be carried with it for years, likely only recovering to its 2019 peak in late 2022. The projected pace of the recovery, as forecast by the OBR, is despite being cushioned by heavy fiscal support. After the latest extension to the government’s furlough scheme, the fiscal deficit is set to hit a tremendous 20% of GDP.
“Over the longer term I have sincere concerns about the UK. Brexit does mean that the UK will likely lose some of its sheen. Being excluded from the world’s largest single market area will see jobs, people, and capital flows trickle away from the UK, in search of destinations which instead embrace globalisation.”
Quentin Fitzsimmons, portfolio manager of the T. Rowe Price Global Aggregate Bond strategy, says investors will be relieved there’s a deal.... although it might be too ‘skinny’:
“Achieving a deal heads-off the cliff-edge that all investors have been worried about, so a deal is unequivocally a good thing. We have seen relief increasingly factored into a stronger pound and a softening of gilt prices.
“However, as ever the case in the Brexit-saga, the devil will be in the detail. The risk that the deal is seen as too skinny might start to see a new year’s hangover impact both the currency and the political fortunes of Boris Johnson as the consequences of Brexit continue to unfold.”
Adrien Pichoud, chief economist at SYZ Private Banking, also believes the deal will boost markets:
Combined with positive news around the roll-out of Covid-19 vaccines, a Brexit deal will boost markets and strengthen the reflationary environment we expect to prevail in the first half of 2021.
We believe the conditions are ripe for a coordinated acceleration of global growth over the next three to six months, of which this is only the beginning. The temporary return of growth and inflation increases the potential for cyclical value names to outperform growth stocks over this period, and we have added cyclicality to our portfolios through a global value ETF.
However, if the market goes through the roof in the first five to six weeks of 2021 – as it has in previous years – we are prepared to purchase equity protection certificates. When the year starts with a strong rally, you can be almost sure this will be difficult to sustain. In fact, as the long tail of Covid-19 continues to affect lives and economies around the world, we can expect continued volatility in the market.
Ranko Berich, head of market analysis at Monex Europe, explains why the pound has dropped back since the deal was announced:
“The uninspiring sterling reaction to today’s confirmation of a trade deal is looking like a classic case of “buy the rumour, sell the fact”.
After weeks, months, and years of back-and-forth, it seems the confirmation of the deal was mostly as expected by markets and as such is not a game changer for sterling. Other factors, most importantly Covid-19, will now once again begin to drive the outlook for the pound.”
As things stand, the pound is now up almost half a cent today, at $1.354, and also up a third of a eurocent at €1.111.
The pound has dipped back from its early highs, now we actually have a Brexit trade deal.
Sterling is now trading around $1.355, still up over half a cent today (having almost hit a new 31-month high this morning).
A measure of one-month sterling volatility has dropped, Reuters flags up, which suggests investors are less worried about the pound tumbling in a no-deal scenario. Those who haven’t already clocked off for Christmas, anyway....
Updated
UK and EU agree Brexit trade deal
Update: The trade deal is finally done.
Here’s our news story, by Lisa O’Carroll and Daniel Boffey:
A historic deal on the UK’s future trading and security relationship with the European Union has been struck on Christmas Eve, a week before the end of the Brexit transition period.
As the country leaves the single market and customs union on 31 December, new arrangements allowing for tariff-free trade in goods and close police and judicial cooperation will come into force.
The announcement followed a final morning call between Boris Johnson in Downing Street and the European commission president, Ursula von der Leyen, in her Berlaymont headquarters in Brussels – the fifth such telephone conversation over the last 24 hours.
The trade agreement – running to 2,000 pages – is unprecedented in scope, containing provisions on subjects varying from civil nuclear cooperation and energy interconnections to fishing and aviation.
The prime minister told his cabinet late on Wednesday night that it respected the sovereignty of both sides, as he urged senior figures to help him sell it.
On Wednesday, the Brexiter European Research Group of Conservative MPs said it would ask a self-styled “star chamber” of lawyers to scrutinise the terms before giving its support.
The agreement avoids a no-deal exit that the Office for Budget Responsibility had warned would reduce Britain’s economic output by £40bn in 2021 and cost more than 300,000 jobs.....
More here:
We’ll be tracking all the details and reaction here:
Time for a recap
With the London stock market now closed for Christmas, it seems sensible to wrap this up.
Especially as our Politics Live blog is covering the Brexit news:
So here’s a quick recap.
The pound has risen close to its highest level in 31 months, as investors anticipated a UK-EU trade deal.
Sterling jumped over one cent this morning to $1.3619, very near to its highest level since May 2018 ($1.3624, set last week).
But it has slipped back slightly, after a late hitch has delayed the announcement, and as the pandemic continues to cause disruption at Dover.
The agreement is expected to include unprecedented provisions for zero tariffs or quotas on all goods, as well as settle the future arrangements on a vast range of issues from aviation and transport to civil nuclear cooperation and energy.
Without a deal to examine, the FTSE 100 index closed slightly higher this lunchtime, as the City clocked off for Christmas. It was lifted by solid gains for banks, builders and other UK-focused companies
The FTSE 250 index, seen as a better gauge of UK economic optimism, hit its highest level since late February as the market continues to claw back this year’s losses.
An index of small-cap companies hit a record high.
Capital Economics pointed out that the UK is heading for a fairly ‘hard’ Brexit, as custom checks and procedures will be required on goods moving between the UK and the EU from 1st January for the first time since 1973.
This will add to the major disruptions and delays at the UK-EU borders
JPMorgan said the EU had secured a deal which allows it retain nearly all of its advantages from trade with the UK but with the ability to use regulations to “cherry pick” among sectors where the UK had advantages - such as services, Reuters reported.
BlackRock portfolio manager Rupert Harrison said a deal was one of several reasons to be optimistic about 2021.
The London stock market can’t respond until Tuesday now. So, I hope you have a lovely Christmas break!
And remember, you can keep up with latest Brexit news here:
Updated
The US stock market has opened rather quietly, on a shortened trading day before Christmas.
The Dow Jones industrial average has risen 67 points, or 0.2%, to 30,197, as investors shrug off Donald Trump’s decision to veto a $740bn defence spending bill.
The US stimulus package is also currently in disarray, after Trump insisted that Americans should receive $2,000 checks, not $600.
This proposal failed overnight. House Speaker Nancy Pelosi said Democrats would try to get the deal through again on Monday. Should the relief bill fail, millions of Americans will be without desperately needed relief at least until President-elect Joe Biden takes office in January....
Updated
The latest word on the elusive trade deal is that the negotiations have been delayed because the European commission was using the wrong fish figures.
Our Politics Live blog explains:
The final stage of the negotiations for a post-Brexit trade deal has been delayed after it emerged that the European commission was using out-of-date figures to calculate the reduction in the amount of fish that member states can catch in British waters after 1 January.
A deal was due to be announced early this morning but the announcement had to be postponed when officials noticed a discrepancy between two sets of fishing figures and realised that the numbers used in the negotiation appeared to be out of date.
Negotiations are now expected to run for several more hours before the deal is agreed. It remains the case that both sides expect an agreement to be reached.
The delay on Brexit seems to be that some of the baseline fish figures the EU shared with member states don't tally with those negotiated in the room with the UK, so there is now an effort to ensure the two sets of numbers tally and everyone is talking about the same thing
— Tim Shipman (@ShippersUnbound) December 24, 2020
“Nothing is agreed until everything is agreed” Yes, this is the truism that has governed these negotiations from the start.. But - as one EU diplomat mentioned in passing - they could have started counting the mackerel a few days earlier .. #Brexit
— Katya Adler (@BBCkatyaadler) December 24, 2020
European stock markets have also closed for Christmas with little drama.
Spain’s IBEX rose almost 0.5% but France’s CAC dipped by 0.1%.
With Britain’s FTSE 100 closing a mere 0.1% higher, this left the Europe-wide Stoxx 600 index up 0.18% today (as the German and Italian markets were festively shut).
The pound has now dipped below $1.36, as there’s still no sign of this elusive Brexit deal.
City traders, who have clocked off for Christmas, can enjoy some quality TV instead:
Sounds like Moana and maybe even Cars 3 are now also safe
— Laura Kuenssberg (@bbclaurak) December 24, 2020
Moana (good film, excellent tunes #recommended) is on until 2.15pm. It’s followed by Cars 3 (no idea, sorry, but the first one was fun), so you can probably settle in....
A share index of small UK companies has hit a record high today, lifted by Brexit deal optimism.
The FTSE Small Cap index enjoyed a Santa Rally today, finishing 0.8% higher and rising above its previous record (set on 7th December).
That adds to the FTSE Small Caps’ 1.2% rally yesterday, when the City began to anticipate a deal.
The Small Cap index contains companies who are too small for the FTSE 250 index (let alone the FTSE 100), and doesn’t normally get much attention,
But, today’s move underlines that investors are expecting a Brexit deal... as small UK companies would be pretty vulnerable to the economic disruption of no-deal.
As Reuters puts it:
Domestically focused UK shares jumped about 1% in Thursday’s shortened trading session in anticipation that Britain and the European Union would announce a trade pact to avoid a chaotic separation at the end of the year.
The mid-cap FTSE 250 index, considered a proxy to Brexit sentiment, jumped 0.6% to its late February high, while small-cap stocks surged 0.8% to a record high.
Smaller company shares jump on Brexit hopes
Brexit deal optimism has pushed the FTSE 250 share index of medium-sized firms to a new 10-month closing high.
The FTSE 250 is seen as a better gauge of UK economic prospects than the (rather larger) FTSE 100 because it contains more domestic companies.
The mid-cap index rallied solidly today, and closed up 1.23% or 248 points at 20,546 points, even though we’ve not got a deal yet.
That’s its highest level since late February (the first week of the market crash after the pandemic reached Europe, leading to lockdowns in Italy).
It means the FTSE 250 is only down 6.1% this year, and up 18% this quarter (since encouraging vaccine trial news triggered a strong rally):
Henderson Smaller Companies Investment Trust (which invests in small UK firms) led the FTSE risers, up 7.7%, followed by luxury carmaker Aston Martin (+7.1%).
Other risers included holiday firm TUI (+5.8%), and retail property owner Hammerson (+5.9%).
Ftse 250 (domestically focussed index) finishes up almost 250pts (1.2%), almost 5% on week, as few remaining traders head home to see if this deal actually arrives before Santa
— Dharshini David (@DharshiniDavid) December 24, 2020
Much more internationally focussed FTSE 100 manages just a 6 point rise, as deal hopes = stronger £ which reduces value of overseas profits
— Dharshini David (@DharshiniDavid) December 24, 2020
Here are the top risers and fallers on the FTSE 100 share index today, before trading finished early for Christmas:
FTSE 100 close: UK companies lead the Christmas Eve risers
That’s it. The London stock exchange has finished for Christmas, without traders getting a glimpse of the UK-EU trade deal.
UK-focused companies led the risers on the blue-chip FTSE 100 index, with lender Lloyds Bank jumping almost 4%, engineering firm Melrose up 3.5%, and supermarket chain Tesco gaining nearly 3%.
Housebuilders Barratt Development and Berkeley Group finished around 1.7% higher, with Premier Inn operator Whitbread up 2.4% and Primark owner AB Foods rising 2%.
But the wider FTSE 100 only gained 0.1%, or six points, to 6502 points, with the stronger pound weighing on multinationals with large overseas earnings.
That’s the Footsie’s highest close this week, but still lower than last Friday (following a sharp fall on Monday after tighter Covid-19 restrictions were imposed in London).
Updated
The BBC’s Gavin Lee is reporting that the Brexit deal could be a few hours away yet, dashing early hopes that it might come before the London stock market closed for Christmas.
EU official close to the talks says there’s “a good few hours yet” on the negotiations before they can conclude. 🤔#BrexitDeal #Brexit
— Gavin Lee (@GavinLeeBBC) December 24, 2020
BBC News reports Brexit deal "will be a good few hours yet".
— Jim Edwards (@Jim_Edwards) December 24, 2020
Here’s Reuters take:
Talks to conclude a Brexit trade could still have “some hours to run”, a UK source said on Thursday amid high hopes that negotiators were about to clinch a long-elusive deal.
A European Union official, agreeing that a deal could be some hours away, said the two sides were still haggling over the EU’s right to fish in British waters.
BREXIT - EU OFFICIAL SAYS TRADE TALKS SNAGGED ON FISHING, DEAL MAY STILL BE HOURS AWAY... we are NOT really going to do this on Christmas eve
— FxMacro (@fxmacro) December 24, 2020
Here’s an interesting thread on the (awaited) deal, from Alex Stojanovic of the Institute for Government.
From an economic point of view the UK could've got more on services. But its priority was maintaining independence. You could look at that and say it still got a zero-duty zero-quota FTA with some important extras - ROO leniency in some areas, cooperation on customs 1/ https://t.co/gPvHi7GfGm
— Alex Stojanovic (@awstojanovic) December 24, 2020
If your main criticism is that this deal is going to be bad economically for the UK, that criticism basically applied from the moment the UK decided not to pursue single market membership or some sort of variant. 2/
— Alex Stojanovic (@awstojanovic) December 24, 2020
The FTA could've got better on services but how much overall difference would it have made? It was always going to be limited. In the end this deal strikes a particular balance that more heavily weights the UK's independence over economic access. But it is still a balance 3/
— Alex Stojanovic (@awstojanovic) December 24, 2020
If the UK gets a decision for data adequacy and financial services equivalence this is even more true. By striking a deal the UK has made these outcomes much more likely than in no deal and they will make a big difference. 4/
— Alex Stojanovic (@awstojanovic) December 24, 2020
The UK has still secured a framework for cooperating with the EU. In the future the UK and the EU can build on this if they want to. In the meantime, the UK got about as much as it could've hoped to with its red lines set so firmly towards rejecting EU offensive asks. ends/
— Alex Stojanovic (@awstojanovic) December 24, 2020
JPMorgan said the EU had secured a deal which allows it retain nearly all of its advantages from trade with the UK but with the ability to use regulations to “cherry pick” among sectors where the UK had advantages - such as services.
JPMorgan on the Brexit deal: pic.twitter.com/V3itxeqnVJ
— Guy Faulconbridge (@GuyReuters) December 24, 2020
Professor Costas Milas of Liverpool University has kindly sent over a chart, showing how sterling has responded to changes in UK economic policy uncertainty in recent years (measured by the discussion of policy uncertainty in 650 UK newspapers).
He explains:
From the plot, higher policy uncertainty hammers both the sterling effective rate and the sterling rate against the dollar.
Notice that the sterling index tracks policy uncertainty more closely (its correlation with policy uncertainty is -0.52) than the sterling against the dollar (its correlation with policy uncertainty is much weaker at -0.23). Let’s not forget the sterling vs the dollar has also responded to Trump’s policies and/or tweets!
Last, but not least, policy uncertainty is currently higher than what it was when Boris Johnson signed the withdrawal agreement with the EU in January 2020. Clearly, markets are currently waiting to see (and assess) what the new deal will look like!!!
Updated
With less than an hour’s trading to go until the stock market closes early for Christmas, the FTSE 250 index is still solidly higher.
The mid-cap index is currently up 1.1%, or 225 points, at 20,523, having hit a 10-month high in early trading.
Two luxury brands are among the risers, with carmaker Aston Martin up 8% and Watches of Switzerland up 6.7% (they’ve had a very strong year for sales, with some wealthier shoppers splashing spare cash on Rolex, Patek Philippe, Tag Heuer and Omega timepieces....).
Raffi Boyadjian, senior investment analyst at XM, says the pound is showing a ‘relatively contained reaction’ to the prospect of an imminent trade deal with the EU.
Anxiety over the Covid-19 pandemic, and ongoing disruption at the ports, may be a factor, he adds.
Investors are either holding back until there is an official statement out of fear of a last-minute hiccup, or expectations that a deal would be done have already been mostly priced in, raising the possibility of ‘buy the rumour, sell the fact’ trades in the coming sessions.
However, a more likely reason for sterling’s unenthusiastic response is rising concerns about the British economy, deal or no deal. The UK recorded almost 40,000 cases of coronavirus on Wednesday – the highest daily tally so far in the pandemic. The government yesterday added more regions of England to the highest tier of restrictions, effectively placing them under full lockdown. Making matters worse, travel across the Channel – the UK’s most important trade route with Europe – remains clogged up with queuing lorries and the recent easing of the ban by France has done little to alleviate the situation.
After over three hours of muted Christmas Eve trading, the FTSE 100 has now dipped into the red.
The blue-chip index is now down 12 points or 0.2% at 6483, as investors await the much-anticipated Brexit trade deal.
That last-minute hitch over fish may be to blame.....
Kung Fu Panda 3 has just started on BBC One and it doesn't seem likely we'll have to press pause for a deal announcement
— Laura Kuenssberg (@bbclaurak) December 24, 2020
The pound is still holding its gains, though, outshining other major currencies:
- Against the US dollar, sterling is currently up 1.15 cents, or 0.85%, at $1.361
- Against the euro, sterling is currently up 0.75 of a eurocent, or 0.68%, at €1.1155.
Boris Johnson has been accused of selling out farmers – particularly in Scotland and northern England – after it emerged that seed potatoes are not set to be included in a post-Brexit trade deal, my colleague Libby Brooks writes.
A letter from the Department for Environment, Food and Rural Affairs (Defra) said the EU would allow almost all food and plant exports from Great Britain to continue from 1 January.
However, seed potatoes will be banned. The Defra letter says:
“Unfortunately the EU have confirmed they will not accept our case for a permanent change to the prohibition on seed potatoes … on the grounds that there is no agreement for GB to be dynamically aligned with EU rules.”
Scottish seed potato farmers are one of the biggest exporters for the production of chips and crisps in the world, with the sector accounting for three-quarters of UK production and worth about £112m a year.
Here’s the full story:
And here’s some reaction:
The seed potatoes industry is concentrated in Scotland & Northern England, and is worth over £100m a year. Can't even export to Northern Ireland. https://t.co/5D4rucNJEY pic.twitter.com/W4erJxxkqH
— John Harris (@johnharris1969) December 24, 2020
The seed potato industry is worth £113m to the UK. Scotland has perfect conditions for the best seed potatoes in the world. This is a terrible deal for that industry https://t.co/LCMITX5FhH
— Jane Merrick (@janemerrick23) December 24, 2020
Lloyds Banking Group is still the top riser in the FTSE 100 index, up 5% currently at 39p.
That means the UK lender has gained 12% since yesterday morning, as hopes of a Brexit trade deal have built up.
Other UK companies are also holding gains, with housebuilder Berkeley Group up 3.4%, supermarket chain Tesco up 2.9%, and airline group IAG up 2.1%.
The wider FTSE 100 has dipped back a little, currently up just 10 points or 0.15% at 6505 (with the stronger pound weighing on multinationals a little).
BlackRock portfolio manager Rupert Harrison (formerly top economic advisor to chancellor George Osborne) is also positive about economic prospects next year:
Reasons to be cheerful about 2021 in the midst of a chaotic Christmas:
— Rupert Harrison (@rbrharrison) December 24, 2020
- With a deal done, Brexit will become a 3rd or 4th tier political issue
- With the vaccines, life should be pretty much back to normal by May at the very latest
- The global economy will be booming
And an important omission - we won't need to care about whatever Trump has just tweeted:https://t.co/oE0wJ405Um
— Rupert Harrison (@rbrharrison) December 24, 2020
Paul Dales of Capital Economics points out that Britain is still heading for a ‘relatively hard’ Brexit, although a deal will remove one potential brake on the recovery.
- Compared to the other options that the government could have chosen, this is still a relatively “hard” Brexit as the UK will leave the EU’s Single Market and Customs Union. The latter means that custom checks and procedures will be required on goods moving between the UK and the EU from 1st January for the first time since 1973. This will add to the major disruptions and delays at the UK-EU borders already caused in recent days by the COVID-19 crisis.
- But, notwithstanding any further COVID-19 border closures, with time UK firms will become familiar with the new customs procedures. And the deal means businesses can now plan knowing the shape of the UK/EU relationship (although we doubt there will be any release of “pent-up” investment). Perhaps most importantly, the deal removes the risk of a “no deal” Brexit and the resulting hit to households’ real incomes from the inflationary effects of what would have surely been a sharp weakening in the pound.
Capital Economics also predicts that the pound, and the stock market, could be higher in a year if there is a decent UK and global economic recovery from the COVID-19 crisis in 2021:
Today’s news that a UK-EU Brexit deal will soon be announced may not boost the financial markets by much more. But a decent economic recovery in 2021H2 may mean that the pound rises to around $1.40 by end-2021 and the FTSE 100 climbs to about 7,500.https://t.co/SnkQWEEfUW pic.twitter.com/DVDupL5Cb0
— Capital Economics UK (@CapEconUK) December 24, 2020
David Owen, chief European economist at investment bank Jefferies, points out that a deal won’t be the end of the Brexit process:
The devil will be in the detail, but at least we are on the cusp of a deal finally being agreed, and we can hopefully look forward to a strong economic recovery from the second quarter of next year onwards, after the vaccines have been rolled out.
But this is not the end of Brexit, far from it. 2021 will be the start of managed divergence and for many companies, particularly for services, a fundamental change in the way they do their business.
Updated
The pound has risen against the euro this morning too.
Sterling gained over 0.6% to touch €1.115, its highest point since December 1st.
But again, that’s still much lower than before the referendum in June 2016 (when one pound was worth up to €1.30).
I’ve also realised the FTSE 250 index hit a 10-month high this morning, not eight-month as I wrote earlier - sorry.....
Updated
Pound hits $1.36
Sterling is continuing to strengthen, and just hit $1.36 against the US dollar, up over a cent today.
That puts the pound close to its highest level since 2018 (it hit $1.362, a 31-month high, last Thursday).
But, sterling is still sharply lower than before the EU referendum in 2016, when it traded around $1.48.
Pound rally continues as a UK-EU Brexit trade deal is imminent. pic.twitter.com/O52TbuXssN
— Holger Zschaepitz (@Schuldensuehner) December 24, 2020
The City, like the rest of the country, is still waiting for the deal to actually be announced.
A ‘last-minute hitch’ related to fishing seems to have emerged, Reuters reports:
Irish Foreign Minister Simon Coveney said a late snag related to fishing had delayed the agreement, but that an announcement was expected later on Thursday.
“There is some sort of last-minute hitch” related to “small text” of a fisheries agreement, Coveney told Ireland’s RTE radio after weeks of haggling over just how much fish EU boats should be able to catch in British waters.
“I had hoped to be talking to you this morning in parallel with big announcements happening in both London and Brussels, but we still expect those later on today.”
Last-minute fishing hitch delays announcement of Brexit deal - Irish foreign minister https://t.co/QuFGMDCf8C pic.twitter.com/Z0MKszAlt9
— Reuters Business (@ReutersBiz) December 24, 2020
FTSE 250 index hits 10-month high
The FTSE 250, which is more domestically focused than the blue-chip FTSE 100, has hit a new 10-month high this morning.
The index of medium-sized companies, many in the UK, jumped by over 1% in early trading, hitting its highest level since the end of February (when the pandemic sent markets tumbling).
Top risers include Henderson Smaller Companies Investment Trust (+4%) and Aberforth Smaller Companies Trust (+3.9%) which both invests in small UK firms with growth potential.
Carmaker Aston Martin (+4.7%) and budget airline easyJet (+2.7%) are also among the FTSE 250 risers
Updated
Jeffrey Halley of trading firm OANDA says reports of a Brexit trade deal breakthrough have lifted the markets:
Financial markets picked themselves up and dusted themselves of overnight, after a torrid week. Sentiment improved after headlines started appearing that the United Kingdom and European Union have finally reached a provisional Brexit trade agreement.
But, he points out that the situation in Britain is decidedly unfestive:
Still, it leaves the UK isolated internationally due to Covid-19, thousands of trucks marooned on each side of the English Channel and follows more of England’s regions being moved into a hard tier-4 lockdown.
Some other European markets have also opened a little higher, but there’s not exactly a rush to buy shares.
France’s CAC, Spain’s IBEX and the Netherland’s AEX have all gained around 0.25% in early trading (Germany and Italy are closed for Christmas).
The FTSE 100 index has gained 31 points in early trading, up 0.5% to 6526, lifted by the banks and housebuilders.
That pushes the index of the biggest companies listed in London close to the nine-month high set earlier in December.
Banks and housebuilders rally
Shares in UK banks and housebuilders have jumped at the start of trading, as the City anticipates a Brexit trade deal.
Lloyds Banking Group are the top riser on the blue-chip FTSE 100 index, up over 5%, with fellow banks Barclays (+3.6%) NatWest (+3%) also gaining.
Taylor Wimpey (+5%), Persimmon (+4.5%) and Berkeley Group (+4.2%) are also in demand. The homebuilders are a bellwether of UK economic confidence, and typically suffer whenever fears of a no-deal Brexit sweep the markets.
Updated
The Financial Times says a trade deal would be a platform to rebuild relations between the UK and the European Union:
The deal will preserve tariff-free EU-UK trade for goods. It will also cover issues such as police and security co-operation and preserve the cross-border energy market, but it will do little for the services sector.
Although the agreement is often described as a “thin” trade deal, it will provide a legal platform upon which the two sides can rebuild relations more than four years after the trauma of the 2016 Brexit vote.
The final days of negotiations were dominated by discussions over the fate of the EU’s fishing rights in UK waters, currently worth about €650m per year.
According to people briefed on the talks, the deal includes a transition period of five-and-a-half years during which EU boats will have guaranteed access to UK fishing waters. The EU’s fishing rights will be reduced by 25 per cent compared to now, with the knock-on effect of boosting how much British boats can catch.
Updated
Reuters: On cusp of Brexit trade deal...
Reuters reports that the UK and EU are on the ‘cusp’ of avoiding a chaotic end to the Brexit process this morning.
Britain and the European Union were on the cusp of striking a narrow trade deal on Thursday, swerving away from a chaotic finale to a Brexit split that has shaken the 70-year project to forge European unity from the ruins of World War Two.
While a last-minute deal would avoid the most acrimonious ending to the Brexit divorce, the United Kingdom is heading for a much more distant relationship with its biggest trade partner than almost anyone expected at the time of the 2016 Brexit vote.
But...some disruption is certain, even if a zero-tariff and zero-quota deal on goods is agreed.
If there is to be a deal, it will cover goods but not the financial services that make London the only financial capital to rival New York. Services make up 80% of the British economy.
In essence, the agreement is a narrow free trade deal surrounded by other pacts on fisheries, transport, energy and cooperation in justice and policing.
Despite the agreement, goods trade will have more rules, more red tape and more cost. There will be some disruption at ports. Everything from food safety regulation and exporting rules to product certification will change.
On the cusp of Brexit trade deal, EU and UK hash out final details https://t.co/t307ErjLq1 pic.twitter.com/cLvY7BDCST
— Reuters (@Reuters) December 24, 2020
Introduction: Brexit deal hopes lift pound
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A UK-EU free trade deal has long been high on investors’ wish list this Christmas (along with successful vaccine rollouts and a return to normal, happier times).
And today, four and a half years after the referendum, a narrow agreement may finally be imminent.
Sterling is pushing higher this morning, and the London stock market is expected to rise when trading begins at 8am, as expectations build of an Brexit trade deal announcement this morning.
The pound has gained over three quarters of a cent in early trading against the US dollar, to around $1.357, on growing optimism that the two sides will avoid moving to WTO trade terms when the transition period ends on 31st December.
That adds to yesterday’s gains when the news broke that a deal was close. It takes sterling closer to the 31-month high of $1.362 set earlier this month.
Josh Warner of City Index says:
Hopes of a Brexit deal in time for Christmas sent the pound higher this morning, and the gradual re-opening of the UK-France border is also providing support.
European markets to head higher this morning as they prepare for the UK and the EU to unveil a long-awaited Brexit deal #Brexit #indices #Commodities #forex Via @CityIndex https://t.co/ajZbabjt5M
— Josh Warner (@CityIndex_Josh) December 24, 2020
Deal optimism is also expected to lift shares in Europe, with Britain’s FTSE 100 called up 33 points, or 0.5%, at 6528 points. It’s only a half-day session in the City, but we could still get a traditional ‘Santa Rally’.
The two sides have worked through the night in Brussels, putting the finishing touches to a legal text that is expected to preserve tariff-free trade in goods between the EU and UK, and also protect co-operation in other areas such as security.
As Daniel Boffey in Brussels and Heather Stewart explain:
A post-Brexit trade and security treaty with the European Union is within “touching distance”, Downing Street said on Wednesday night as Boris Johnson prepared to unveil his hard-fought Christmas Eve deal.
The prime minister is expected to announce the terms of the agreement following a final call with the European commission president Ursula von der Leyen – but the two sides battled deep into the night to gain a last-minute advantage.
A press conference planned for early on Wednesday night did not go ahead as the two sides had needed further time to nail down the details which will include unprecedented provisions for zero tariffs or quotas on all goods.
There had been hopes that the deal might come last night, but (as so often with Brexit), this goal slipped as negotiators kept hammering out the final details.
The European Commission president’s spokesman, Eric Mamer, predicted an early start:
#brexit work will continue throughout the night. Grabbing some sleep is recommended to all brexit-watchers at this point. It will hopefully be an early start tomorrow morning...
— Eric Mamer (@MamerEric) December 24, 2020
The BBC’s Laura Kuenssberg reports that several calls took place between Boris Johnson and Ursula von der Leyen to get a deal done, with fish the sticking point:
Understand there were four calls between PM and EU chief Von Der Leyen yday to get Brexit deal over the line. One final one in about half an hour expected to sign and seal after late night wrangles over individual fish species (am not making this up)
— Laura Kuenssberg (@bbclaurak) December 24, 2020
There had been rumours of a press conference at 8am UK time, but this may now be slipping, the BBC’s Katya Adler reports.
Morning! After negotiators worked through the night, the timings are slipping of expected press conferences following a call between the PM and the European Commission chief .. #Brexit
— Katya Adler (@BBCkatyaadler) December 24, 2020
Morning - I hope you are asleep, especially as it’s Christmas Eve. If you are awake, expect PM a to talk to EU chief at about 7am UK time now with a press conference to follow at about 8
— Laura Kuenssberg (@bbclaurak) December 24, 2020
Our Politics liveblog is covering the drama, but we’ll be tracking the financial reaction here in the final trading day before Christmas:
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